Rinehart delivers ultimatum to Fairfax

Gina Rinehart, Fairfax Media's largest shareholder, has called on chairman Roger Corbett to agree to a "performance milestone" of returning the company's share price to 87 cents and reverse "the five-year decline in paid circulation and revenue".

In a letter to Mr Corbett, released to this website, Mrs Rinehart said the performance of Fairfax over the past five years had been "distressing for shareholders".

The letter, in the form of an ultimatum, came after the Fairfax board on Wednesday announced it would not be able to give Mrs Rinehart a board seat citing disagreements over editorial independence.

In a statement late today, Fairfax returned fire, disputing her statement that the differences with the board were not about editorial control and calling on Mrs Rinehart to bid for the company if she wants control.

"Contrary to Mrs Rinehart’s repeated assertions that this isn’t about editorial control - it is. It is also about her obtaining control of the company and not paying a premium.

Under fire ... Roger Corbett. Photo: Louise Kennerley

Cutting the loss

Mrs Rinehart holds an 18.7 per cent stake and has demanded as many as three board seats. The mining magnate has also criticised Fairfax's editorial stance on issues such as the metropolitan newspapers' support of Earth Hour, an annual global event aimed at highlighting environmental concerns.

"Shareholder value has fallen significantly. So has the circulation of once-proud mastheads," the letter reads.

"...The milestone we propose is that the Fairfax Media weighted average trade share price increase from current levels to 87 cents per share prior to the (annual general meeting), which would represent only a 50 per cent loss from the commencement of your chairmanship in October 2009.

"To limit the loss under your chairmanship to 50 per cent is not an unreasonable expectation, although perhaps shareholders would prefer a higher milestone target?

"Shareholders should at the very least be advised what the loss target is and be assured that should you not meet that target there would be light at the end of the tunnel. And if the five-year decline in paid circulation and in revenue of the Fairfax mastheads do not reverse prior to the 2012 AGM, we ask that you tender your resignation at that meeting."

"Where we have differed most profoundly is not over the charter of editorial independence, contrary to much Fairfax reporting, but over how to save a business that is reportedly in danger of dying."

(Fairfax Media is the publisher of this website.)

Motives 'unmasked'

In its response, Fairfax Media said it stands behind its governance principles and the charter of editorial independence. "The principles and the charter have been recognised as underpinning the credibility of the mastheads and the Fairfax board stands unequivocally behind them," Fairfax said.

"If Mrs Rinehart wants control of Fairfax Media she must make a bid. Mrs Rinehart’s letter today has once and for all unmasked her motives for her continual attacks on the company and its board," the company said.

"Our readers are telling us that if Mrs Rinehart succeeds in this personal crusade they will abandon us," the Fairfax response said. "We have tens of thousands of letters and emails of support."

No skin in the game

Mrs Rinehart also repeated her concerns that existing board members, particularly Mr Corbett, did not have enough of their own money at risk in the shareholdings in the company.

"Roger, although you are only a 0.004 per cent shareholder, you have extraordinary power as chairman, derived from the Fairfax Media Board Governance Principles (FMBGP) you insisted that I comply with. That power includes being able to prevent directors from receiving professional advice (FMBGP point 7) and prevent directors from being able to discuss Fairfax Media matters with senior Fairfax executives or others (FMBGP point 5). While this restriction applies to directors, it does not apply to you.

"Given this special opportunity to lead the company, it is entirely reasonable that the chairman shares with the suffering shareholders his performance milestones for Fairfax Media and the consequences of not meeting them prior to the 2012 (annual meeting)."

Fairfax shares ended the day up 1.5 cents, or 2.8 per cent higher, at 55.5 cents. The stock touched a record low of 52.5 cents yesterday.

Much of Australia's media industry is struggling to adjust to a weak advertising market and a shift of consumers to digital products. Fairfax last week announced plans to cut 1900 jobs, or about one fifth of staff, over the next three years, while rival News may shed as many as 1000 jobs as it shrinks the number of its Australian units.

The industry issues were also touched on in the Fairfax reponse.

"Mrs Rinehart attacks the performance of the Fairfax Media stock price. All media stocks have been impacted by global structural and cyclical forces," the company said.

"It is worth noting that in the period since Mrs Rinehart has joined the Ten (Network) board its stock has traded 63.4 per cent down. In the same period Fairfax Media’s stock price is down 60.6 per cent. Seven West Media is down 73.3 per cent and APN is down 64.7 per cent."